Alternative Financing In Asia

The alternative finance industry is fundamentally challenged by a lack of alternative credit data, especially when cash is still king among SMEs in fast growing ASEAN. Alternative lenders that make use of traditional credit data to offer commercial loans can still find it tricky to verify the credit history of SMEs and therein, any credit risk can be overstated or understated. Meanwhile suppliers that make use of traditional credit data to offer credit terms are also facing the same fundamental challenge. This leads to 2 outcomes:

Overstated credit risk: When credit risk of a commercial loan or transaction is overstated, SMEs are affected by higher cost of borrowing or shorter credit period.

Understated credit risk: When credit risk of a commercial loan or transaction is understated, alternative lenders and suppliers are affected by higher default rates and longer payment delays from SMEs.

Along with the 2 fundamental outcomes, SMEs do not have the ability to showcase their own credit reputation, adding to their own difficulty of obtaining business financing and credit terms.

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